EXECUTIVE SUMMARY

The Internet is an essential tool of everyone’s day-to-day life. It has become almost impossible to live without it. Interestingly, however, the users of its applications hardly ever worry about the low-level Internet protocol infrastructure like IPv4. Internet protocols are immutable for an extended period. The ever-changing needs of applications are addressed by middle-ware while an Internet protocol is separated.
Themelio believes that, as opposed to the Internet, application blockchains (such as Bitcoin) and platform blockchains (such as Ethereum) are too close to applications. Inspired by the Internet’s architecture, Themelio builds a minimal, low-level protocol with straightforward semantics. It is expected that the blockchain could remain separated and radically immutable while its upgradable middle-ware caters to the evolving needs of applications.

Themelio is a Layer-1 public blockchain. It is based on a critical design feature, i.e., endogenous trust, meaning that the blockchain protocol will behave correctly without trusting the people running it. Moreover, several other design features set Themelio apart. Namely, a coin-based (UTXO-based) state model improvised with an expressive scripting language, its Synkletos consensus mechanism, and bi-currency economic model.

It is understood that several innovative implementations set Themelio apart from most acompeting blockchains. Themelio’s trustless stable currency is one such novel idea. Its coin-based model is refined with an expressive covenant scripting language and a coin-oriented application interface. Furthermore, its bonded Proof-of-Stake consensus mechanism introduces a novel Auditor system.

The network is currently launched as a Testnet and Betanet.

The Themelio team is building the network with funding from Polychain Capital. A strong, technically skilled team actively contributes to the project’s development.

Our researchers gave Themelio Network a final rating of 54.20%. (Note: Themelio has not announced a currency/token sale yet. Therefore, the final rating does not assign a score for Tokenomics). The breakdown of this rating is available at the end of this report.

 

PRODUCT & COMPANY DESCRIPTION

Introduction to Themelio

Themelio is a Layer-1 public blockchain with design features to ensure endogenous trust. Themelio will be a minimal, low-level protocol with straightforward semantics, similar to the Internet layer’s Internet Protocol. Themelio is at the bottom of diverse and evolving protocol stacks (a layered ecosystem). It is expected that upgradable middleware protocols could function on top of Themelio to cater to the ever-changing needs of applications.

Themelio is a public blockchain infrastructure based on a Proof-of-Stake (PoS) consensus mechanism/BFT consensus algorithm. The protocol harnesses its own expressive but straightforward scripting language to develop advanced dApps. Themelio’s primary native cryptocurrency is “Mel.” Themelio follows a “UTXO-based” or “coin-based” transaction model. Its secondary currency, “Sym,” is used for staking purposes.

Themelio’s design goals are:

  • Simple abstractions: Less experienced programmers should understand the Themelio blockchain.
  • Stable protocol: Consensus-breaking changes are exceptional and non-controversial-cases-only to deal with critical security issues.
  • Currency stability: Mel is designed to have low price volatility.
  • High performance: Achieve high transaction throughput and scalability.
  • Application neutrality: Themelio does not prevent or censor any categories of applications.
  • Robust decentralization.

Themelio aims to solve three problems encountered by incumbent blockchains. Namely:

  • Horizontal scalability: The fundamental nature of blockchains render it difficult to horizontally scale, this in turn affects decentralized applications running on such blockchains.
  • Governance: Governance decisions on public blockchains are challenging and highly political.
  • Usability: Developers are forced to understand low-level details of blockchains, and eventually, these technical problems manifest in bad end-user experience.

Attempts by other players to improve on these problems are just incremental and appear not to solve them. Themelio argues that the key differentiator of the public blockchains from its predecessor protocols is “Endogenous Trust.” That is, anyone could “trust that a blockchain protocol will behave in a certain way with minimal assumptions about who runs it”.

Themelio resulted from the scientific research work conducted by Yuhao (Eric) Dong, the founder of Themelio Labs. Four such scientific papers influenced the design idea of Themelio. These reports are:

  • Melmint: A trustless stable cryptocurrency.
  • Elasticoin: A low-volatility cryptocurrency with proofs of sequential work.
  • Bitforest: A portable and Efficient Blockchain-based Naming System.
  • Conifer: A centrally-managed PKI with Blockchain-rooted trust.

Themelio’s Design whitepaper is also a good source of information about the motivation and design behind Themelio. The Themelio documentation page consists of many aspects of the project, including basics, learning resources, and specifications. 

The market for blockchain infrastructure is growing. One reason for this growth is that building the ideal network has been a challenge due to inherent trade-offs from a design perspective. One such challenge is the blockchain scalability trilemma. Another aspect is interoperability. In Themelio’s case, it aims to be a minimal blockchain offering endogenous trust and a reliable base layer for the upper layers. User-facing applications could become upgradable to suit the ecosystem’s evolving needs without needing hard forks at the base layer since middleware is expected to handle these demands.

However, the product is currently still very early and is only launched on its public Betanet. The team plans to launch the Themelio Blockchain (stable version) in Q1 2022 after Betanet refinements, audits, protocol updates. Themelio also produced full-featured tooling and guidelines (mostly catered to a technically knowledgeable audience). There are many complex implementations in the pipeline like Melodeon –a language used in writing covenants on Themelio, a GUI wallet, bridge contracts– to trustlessely connect Themelio with Ethereum and its protocol stack to support Layer-2 protocols. 

Therefore, at this stage, Themelio’s product is yet to show Product-Market Fit.

Success Factors

Based on our understanding, there are several success factors for the project. These factors are listed below: 

  • The project’s concepts are well documented and researched.
  • The team is technically highly skilled.
  • The project is backed by a large blockchain investor.

 

MARKET CONDITIONS AND COMPETITION

Market Conditions

The cryptocurrency market is growing fast. Although the market has witnessed short-term peaks and troughs, the long-term trend has continued to be upwards. The total market capitalization currently stands at about $2.4 trillion. The smart contract platforms segment accounts for ~$739 billion.

Competition

Themelio operates in a highly competitive market. There are many Layer-1 existing projects as well as upcoming projects. However, among all, the Bitcoin and Ethereum networks dominate the market.

How is the project different from its competitors?

Themelio’s minimal blockchain design would diverge with existing blockchains in several ways:

  • Minimal governance: Themelio is built on the premise that the Protocol does not need ongoing changes.
  • Vertical scalability: The blockchain should scale effortlessly by increasing per-node computational capacity and adding fully secure “thin” clients and Layer-2 strategies (e.g., state channels) to support indefinite scalability for applications.
  • Cryptoeconomic robustness: Conservative crypto-economic assumptions (also a novel bi-currency model).
  • Simple abstractions: Themelio will choose easy-to-understand and straightforward abstractions.

Moreover, in contrast to traditional coin-based architectures like Bitcoin, Themelio could support a wide variety of decentralized apps. Themelio also refines the standard coin-based model with two changes: i) expressive covenant scripting, and ii) coin-oriented application interface.

 

TECHNOLOGY REVIEW

Product

Themelio’s ecosystem consists of three layers:

  • Themelio: A minimal blockchain providing endogenous trust to the entire ecosystem.
  • Themelio Standard Protocols: provides standardization for middleware constructs that are not hard-coded and could evolve without the blockchain itself needing changes.
  • Applications: user-applications built on top of the Themelio Standard Protocols.

Some of the applications and use cases of Themelio:


Two innovative features of the Themelio coin-based (UTXO) model are:

  • Covenant scripting with MelScript: MelScript is a powerful language that allows users to write complex covenants. MelScript is written in a Lua-like syntax and compiled to a stack-based bytecode, MelVM, to be embedded in transaction outputs. MelScript can place conditions on any part of the transaction and could enable a variety of dApps. MelScript is Turing-incomplete and expected to eliminate smart contract bugs occurring in other Turing-complete smart contract languages.
  • Coin-oriented application interface: Themelio participants only need to synchronize the coin state as opposed to the entire blockchain history (in contrast to other UTXO-based blockchains like Bitcoin). Sparse Merkle trees commit data about the coin state making it easier for apps to query the database.

Themelio is intended as a base from which various decentralized applications can be created and run, somewhat similar to the Ethereum blockchain. Nonetheless, developers will not be able to build on top of it until a stable version of the network is launched.

The project’s codebase is hosted on GitHub. However, the project is centrally managed at this stage.

Themelio is currently in its Betanet development phase. It has a testnet and a beta Mainnet. At this phase, however, the network functionalities are minimal and can not be analyzed deeply yet (compared with other projects which have launched their Mainnets).

Blockchain

Themelio is a Layer-1 blockchain network designed not to change, an idea similar to the current Internet protocol ecosystem. The core idea here is that the base layer should not change for an extended period, and that users on the upper protocol layers should trust the base layer to perform the simple tasks it is meant to do.

Themelio will only process at most 1,000 transactions a second. For applications that need higher throughput (e.g., for payments), such applications will have to rely on payment channels. Themelio has developed Astrape, a novel payment channel for this purpose, and a variant called Astramel which is currently under development. 

Themelio implements a coin-based (UTXO-based) transaction model for three reasons; i) to process transactions quickly, ii) to simplify state transition, iii) to be expressive (meaning that it is easy to write dApps on Themelio’s coin-based model).

Consensus Mechanism

Themelio uses a variation of bonded proof-of-stake (PoS) consensus mechanism. This mechanism is improved by introducing a novel “auditor” system. Themelio uses a Byzantine-resistant fault-tolerant algorithm which, along with its cryptoeconomic mechanism, is called “Synkletos.”  

There are three types of participants in its consensus mechanism.

  • Stakeholder nodes: These nodes record and confirm new blocks using a Byzantine Fault-Tolerant (BFT) consensus. Communications between these nodes occur via a broadcast protocol in which other nodes do not participate. Anyone could become a stakeholder by staking Syms, a special secondary currency on the Themelio blockchain. Stakeholders need to stake at least 1,000 Syms for a specific lockup period. Stakeholders’ voting rights are proportional to their amount of Syms staked. Themelio operates on a fundamental security assumption that 2/3 of the staked Syms are held by honest stakeholders. Honest behavior is induced via a reward and slashing mechanism. Stakeholder nodes are the equivalence of miners or validators in other networks.
  • Auditor nodes: Auditors download, verify and gossip the newly created blocks between themselves. They also store a copy of the coin state. Participation is open to anyone who downloads the software. Auditors are more or less similar to full nodes in other networks.
  • Client nodes: Clients are lightweight participants who query the network of auditors to access network information. The clients only synchronize a small piece of data (less than a kilobyte). Two key innovations underpin the uniqueness of client nodes, i.e., metastate commitments in block headers and epoch-based stake bonds.

Built into the mechanism is a “Consensus nukes” that acts as a kill switch. The kill switch is activated when stakeholders (at least 1/3) are actively malicious or compromised. Therefore, the only action a corrupted quorum could do is to shut the network down.

Security Audit

As indicated in the project’s roadmap, the team plans to audit the protocol in Q2 – Q4 2022.

 

ROADMAP

The current version of Themelio’s roadmap stretches out to an explicit timeframe till Q1 2022. Its broader high-level plan after that is presented implicitly. Historically, besides listing the technical accomplishments, the roadmap also briefly discusses the investigational phase from 2014 before the project came into existence.

 

TEAM

Themelio’s documentation does not provide details about the team behind the project. However, after looking at the project’s LinkedIn and GitHub activity, we find several individuals contributing to the project. The team has a strong background in several areas like research, DevOps, Full Stack Development, blockchain, and software. The founder of the project, Yuhao (Eric) Dong, has entrepreneurial experience and is also a security researcher. His other venture Geph is a censorship-resilient commercial VPN.

The core team members are:

Yuhao (Eric) Dong founded Themelio Labs. He previously founded Geph. Eric has a strong research background, and his research forms the foundational elements of the Themelio network. He possesses a Ph.D. and a Bachelor’s in Computer Science from the University of Waterloo. 

Meade K. (Linkedin, TheDarkula on GitHub) is the Head of DevOps at Themelio Labs. He has held various tech-related roles with several entities. Meade functioned as the Interim CTO at Chainetix, as a Rust Consultant for Carterra and GrapheneDB. In addition, he previously held DevOps roles with Code Willing and Bitovi. He also contributed to several open-source projects.

Shane Mendez is a self-taught Software Engineer. Currently, Shane works for Themelio Labs as its Jr Developer. Before assuming the current role, Shane spent around 2.5 years as a freelance full-stack engineer and a software engineering consultant.

Jay Butera (GitHub profile) is a contributor to Themelio Labs GitHub codebase. Jay has software development experience working for the University of Texas. Jay spent eight months with the C4Coin project (now non-operational). He is the Blockchain and AI Associate Mentor at the Ark Lab. He graduated from the University of Texas with a BSc in Computer Science.

Advisors

The project has not listed any advisors.

General Comments on the Team & Advisors

Themelio team’s idea is to build the critical infrastructure and release the stable version of its blockchain in early 2022. As per the roadmap, upon release of the Stable Version of the blockchain, the protocol will only permit consensus-critical updates (to fix critical vulnerabilities). Subsequently, most resource requirements will be to build upper-layer protocols to enable different dApps on top. The project would need to add other skills to the team at that stage. 

During our review period, we did not find evidence of team members taking part in any previous or current illegal projects or projects that were controversial.

 

LEGAL AND COMPLIANCE SPECIFICS

Jurisdiction

Themelio Corporation is a Delaware corporation established in 2020 with the registered agent address at 8 The Green, Ste A, Dover, DE 19901. Themelio Labs is also located at the same address.

The project team plans to decentralize the governance of its protocol ultimately.

Themelio is a USA-based project (although the team may be distributed across jurisdictions). We consider the USA a blockchain-friendly jurisdiction. Nonetheless, we note that many token issuances avoid US investors. Another highlight is that individual states have adopted different approaches toward digital assets. We also note that the regulatory environment in the USA is evolving, like in many other jurisdictions.

The project has not obtained any other licenses or registrations.

Partnerships

Themelio Labs has raised a seed funding round of $1.5 million from Polychain Capital. 

Apart from that, Themelio has not entered into other partnerships so far.

Legal Advisors

There were no legal advisors to the project or team members responsible for legal and compliance matters.

KYC & AML

The project is not conducting a public raise at present.

Token Classification

Themelio is a two-currency construct. The primary currency in the Themelio ecosystem is Mel. Mel is an endogenous stablecoin, a novel asset class introduced by Themelio. Mel is expected to maintain a stable value. Mel is pegged to a unit of the cost of 24 hours of sequential computation (called day of sequential computation or “DOSC”) rather than to other external assets like the US Dollar (USD) or Gold (thereby eliminating the need for oracles).

  • Mels is used to pay for transaction fees.
  • Themelio’s PoS is achieved via a separate staking token, Syms.

 

TOKEN OFFERING

Themelio takes a new approach to the network’s native currency by implementing a mechanism called Melmint. Melmint algorithmically mints Mel, an endogenous stablecoin. Melmint pegs the Mel to an index known as DOSC, which stands for “day of sequential computation.” Melmint also prints another secondary currency called Sym. A Uniswap-like decentralized exchange, MelSwap is introduced to peg 1 Mel to 1 DOSC worth of Syms, using a feedback loop that prints Mels and buys Syms or vice-versa. The peg will be maintained by printing either Mels or Syms. At present, Mels and Syms are created in the beta Mainnet.

 

Themelio’s Currency Peg Mechanism. Source: Themelio Docs

 

Most importantly, the concept of DOSC involves a MelPoW that is a non-interactive proof-of-sequential-work system.

As indicated in the project’s roadmap, both Mels (currency) and Syms (consensus stakes) on the Betanet will be distributed through a combination of airdrops and DEX-based token sales in the future.

 

TOKENOMICS

The Mels and Syms in the Themelio blockchain are inflationary due to its Inflation-backed Mel/Sym peg. This mechanism also means that Themelio’s native currencies have a changing supply adjusted up or down to maintain the peg.

Themelio implements an incentive mechanism inspired by Ethereum’s EIP-1559. The transaction fees consist of a base fee and tips in this method. One-eighth of the base fee is burned, and the rest is deposited into a fee pool. The block producer receives the tips directly. The block producer also gets a fraction of the base fee (commensurate with the stake) out of the fee pool.

 

Per-block producer rewards (including Sym inflation). Source: Design Whitepaper

 

SOCIAL MEDIA AND VIRALITY

Themelio’s social media presence is still very small, and most of its channels have not gathered much attention. Only a very few follow the project’s Twitter account at this juncture (45 followers). However, the team has actively posted since the beginning of October.

Themelio’s Discord channel is the most accessible to communicate with the management. However, there are only 115 members on the channel yet. Discord link here.

Themelio Labs has 132 followers on LinkedIn. The team actively posts on LinkedIn.

Themelio is yet to be discovered by the YouTube community. As the project progresses, there will be increased YouTube content.

There is no ongoing bug bounty program at the present.

 

RISKS TO THE PROJECT

  • Technological Hurdles: Themelio is a highly technically-complex project. It is at present under heavy development. Themelio’s native currency mechanism is not yet commercially battle-tested at scale. Therefore, any technological vulnerabilities could affect the project’s growth in the future. Similarly, if the Themelio currency peg mechanism becomes ineffective, the project might face difficulties progressing.
  • Go-to-Market: Currently, the team’s focus is mainly on product development. However, given the highly competitive nature of the Layer-1 projects market, Themelio will have to follow a robust go-to-market strategy. The project also needs to build an active community, strong marketing backed by financial strength, and recruit an extended core team.

 

RATINGS

Everything you see in this report is the aggregate result of an extensive research process carried out by a distributed team of researchers and crypto enthusiasts around the world. The process consists of 60 questions divided into three phases. Researchers are called to answer these questions about a project, while providing links or screenshots as evidence to support their answers. For every answer, they also provide a rating from zero to ten. The average of their ratings is detailed below.

 

Our researchers gave Themelio a final rating of 54.20%.

 

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